Finances

PAYING DOWN LOANS-HOME EQUITY AND OTHER LOANS

I will start with a hard premise for some. A loan should be used for a non depreciable asset. That would definitely include a home purchase. When used for a car the loan should not be for more than the current resale value of the car. I should mention here that a lease is a loan and if you decide you can't afford the lease you are still responsible for every cent of the lease payments.

My goal is to pay off every loan as soon as possible. That means planning extra payments.

On my home we have been making extra principle payments for 18 years. Our 25 year mortgage will be paid in 2 years or 5 years earlier then the original loan. With lower interest rates many mortgages are now offered for 15 years.

Paying loans off early requires a plan. On a home loan you can get a amortization statement that will show each principle and interest payment. You can add any amount to each payment but designate that it should apply to the principle. There are several ways to make extra payments. You can add a dollar amount to each payment. If you establish a regular extra payment you can use a inexpensive computer program to determine how fast you will pay off your loan with your extra payment schedule. Some people make a payment every two weeks instead of once a month. That makes one extra monthly payment each year. You can also make lump sum payments when you get extra money but unless you get bonuses as part of your pay this may be a plan that is more wish than practice. When you make regular extra payments on a home loan you can save a tremendous amount of interest.

When you pay off your current car loan keep making payments to a special car saving account. Those payments can be the down payment on your next car. One financial adviser I know tries to stay one car ahead with these payments.

Bob Berens, Copyright Pending

Support Love Lines
now with your
credit card

Friends...